ONEOK Outlines Enduring Acquisitive Strategy for Midstream Expansion

Opening Summary

ONEOK, Inc. (NYSE: OKE) senior leadership, including President, CEO & Director Pierce Norton, CFO Walter Hulse, and CCO Sheridan Swords, recently articulated the company's historical and forward-looking strategy concerning mergers and acquisitions (M&A) at the Wolfe Research Utilities, Midstream & Clean Energy Conference 2025. The discussion highlighted a consistent corporate philosophy centered on growth through strategic acquisitions, signaling a sustained focus on significant corporate actions in the midstream sector.

The Event in Detail

During the conference, management detailed ONEOK's long-standing M&A approach, which Pierce Norton noted dates back to the early 2000s. This strategy has been instrumental in the company's expansion, with M&A efforts having "roughly doubled the size of the company." A pivotal moment in this expansion was the 2023 acquisition of Magellan Midstream Partners, which significantly diversified ONEOK into crude oil and refined products pipelines, moving beyond its traditional natural gas focus. This deal transformed ONEOK into one of North America's largest diversified midstream companies.

Further demonstrating this commitment, ONEOK acquired Medallion Midstream and a controlling interest in EnLink Midstream in 2024 for a combined $5.9 billion, at an attractive valuation of 6.3 times estimated 2025 EBITDA including synergies. In 2025, the company continued its acquisitive streak by purchasing the remaining interest in the Delaware Basin Joint Venture for $940 million. Concurrently, the company also strategically divested three interstate gas pipelines to DT Midstream for $1.2 billion in 2024, achieving a robust valuation of 10.8 times EBITDA.

Analysis of Market Reaction

The revelation of ONEOK's sustained acquisitive stance introduces a blend of uncertainty and cautious optimism within the market, resulting in a sentiment characterized as Uncertain to Slightly Bullish. While no immediate M&A announcements were made, the clear signal of ongoing strategic corporate actions suggests potential for future growth and further consolidation within the midstream sector. Investors are likely weighing the benefits of expanded market share, diversified asset base, and enhanced cash flows against the execution risks associated with large-scale integrations and potential debt implications.

The market's reaction is tempered by the understanding that a proactive M&A strategy, particularly one that has historically delivered significant growth, could be a long-term value driver for OKE. The strategic diversification into crude oil and refined products through the Magellan acquisition, for example, has already shifted the company's EBITDA composition, with almost one-third now derived from oil-related assets, one-third from Natural Gas Liquids (NGLs), and the remaining third from Natural Gas.

Broader Context & Implications

ONEOK's consistent M&A-driven growth has positioned it as a dominant player in the U.S. midstream landscape, operating an approximate 60,000-mile pipeline network. This expansion has been a cornerstone for supporting stable fee-based revenue streams and consistent dividend increases. The company currently offers its highest dividend yield in two years, approaching 6%, and projects an increase to $4.28 per share next year, aiming for an annual growth rate between 3% and 4%.

The company's business model is predominantly fee-based, with around 90% of its business across segments generating predictable revenues, insulating it from significant commodity price volatility. This financial resilience is further underscored by efforts to reduce leverage, targeting a debt-to-EBITDA ratio of 3.5x from its current 3.8x, achievable with expected EBITDA growth. In addition to dividends, ONEOK has also engaged in share repurchases, with $17.5 million in Q1 2025 and $172 million in 2024 under a $2 billion authorization.

Expert Commentary

Pierce Norton elaborated on the strategic rationale behind ONEOK's M&A activities:

"Our acquisitiveness actually goes back all the way to the early 2000s. We went through a period of time back there where we actually did quite a few... The theory behind these acquisitions was to get yourself positioned acquisition-wise to expand and extend off those assets that you're collecting."

This commentary underscores a methodical approach to acquisitions, not merely for size but for strategic asset aggregation that enables subsequent organic growth and network expansion.

Looking Ahead

In the near term, ONEOK will prioritize the integration of recent acquisitions into its existing operations, alongside making gradual investments to optimize infrastructure and reduce debt. The company anticipates new opportunities for incremental investments, particularly in its natural gas liquids segment. Projects underway are expected to boost NGL volumes significantly, adding 33,000 barrels per day of fractionation capacity and 540 mb/d of pipeline capacity by 2027.

Future growth opportunities in the natural gas segment are also emerging, notably with plans to connect Permian Basin natural gas assets to a Mexican pipeline feeding an LNG export facility on the West Coast, aiming to capitalize on previously stranded gas. The Eiger Express project, announced in 2025 as a joint venture, further taps Permian natural gas for delivery to the Gulf Coast. While softer oil prices have led to a slight reduction in 2026 EBITDA expectations, ONEOK still projects mid- to upper-single-digit growth, with adjusted EBITDA anticipated to range between $8.0 billion and $8.45 billion in 2026. Formal guidance is expected by February 2026, and the company plans to address upcoming debt maturities by potentially issuing new bonds in early 2026.